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Aftermath Pension Metric – Background

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Basic Indicator – Pension Funded Status. The Aftermath Pension Metric (APM) is a general measure of the funded status of defined benefit pension plans sponsored by private U.S. employers. An APM over 100 indicates that the aggregate market value of pension plan assets exceeds the aggregate projected benefit obligation of the plans; an APM under 100 indicates a deficit of assets relative to obligations.

Alter Ego – Aggregate Economic Measure. The APM provides a unique aggregate measure of diverse economic conditions, more so than any other single measure reflecting the combination of many significant economic forces. As the stock market rises and falls, so too will the APM, all else constant. As interest rates rise and fall, so too will the APM, all else constant. But once fully developed, the APM reflects many other economic trends beyond those basic two, ranging from the cost of living to currency values to demograpic trends, as well as trends in the design of retirement savings programs and retirement financing decisions.

Employers – Dynamic S&P 500. The APM as of any particular date is based on the S&P 500 constituents as of that date. For example, APM values for October 2008 include Wrigley’s pension plan through October 2, but not beyond, since the S&P 500 replaced Wrigley with Dr. Pepper Snapple Group on October 3.

Primary Data Source – 10-k Annual Financial Statements. The APM as of any particular date is based information disclosed by companies on their 10-k annual financial statements filed through that particular date.

Defined Benefit Pension Plans. The APM reflects the plan assets and projected benefit obligations for U.S. tax-qualified single-employer defined benefit pension plans, defined benefit nonqualified supplemental executive retirement plans (SERPs), and defined benefit foreign pension plans. Note that SERPs are generally unfunded, and that foreign pension plans generally are less well funded than are U.S. qualified pension plans.

Accounting – SFAS 87 Measurements. The APM is based on the market value of pension plan asssets and the projected benefit obligation, as measured and reported under generally accepted acounting principles prescribed by SFAS 87.

Further details and methodology notes will be provided in a document I’ll post online shortly.

(Remember, as I’ve previously observed, posts such as this represent efforts of my favorite pastime. My formal work does not involve any of this, and none of it represents any position or comment that should in any way be attributed to my employer. Likewise, as always, it represents general personal impressions and should not be treated or used as formal professional advice.)

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Written by macheide

12 October 2008 at 5:38 am

Posted in άctuary


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